FINANCIAL MANAGEMENT/A private matter
When Chicago tried to sell a prime downtown land site zoned for office development through its traditional request for proposals (RFP) process, it could not find any bidders that were willing and able to pay the $15 million target price. But then the city hired a real estate firm to conduct the sale. Unlike the city, the company was able to aggressively market the land to both a local and national audience. The firm also eliminated much of the burdensome paperwork typically required to bid on government property. The end result: seven companies submitted written bids for the site, and the firm structured the final sale to ensure that the buyer pays between $16 million and $20 million for the site, depending on the scale of the final approved development plan.
More than ever, local governments should consider whether hiring a private-sector firm to handle the sale of buildings and land will produce a better outcome than traditional RFP processes. Under pressure to meet budget goals in tough economic times, governments are recognizing that real estate assets represent an opportunity to raise money, especially as demand increases for upscale residential housing in urban areas and for retail amenities to serve an influx of residents. Because urban property values are often much higher than a few years ago, more local governments are motivated to sell their properties quickly.
In Chicago’s case, the undeveloped two-acre site in the West Loop was attractive to developers. Located adjacent to the Interstate 90/94 highway and within three blocks of two commuter train stations, the site was zoned for 900,000 square feet of office, hotel and ground-floor retail space. Planned improvements in downtown infrastructure, including a new multi-modal transportation corridor and new parks, would further enhance the property’s value.
Having rarely used firms to sell real estate in the past, Chicago hired one in June 2003 to sell the property by the end of the year. The company launched an aggressive marketing effort that included a live presentation to interested local buyers to showcase the property and to explain how the bidding procedure featured less paperwork than the traditional RFP process. The marketing plan also included a national print and mail advertising campaign designed to reach a broader audience of potential buyers than the city had reached previously. The company contacted a short list of the most attractive prospective buyers to ask them to improve their bids. The resulting best-and-final offers were 40 percent higher, on average, than the initial offers.
The firm’s work did not end with the submission of the bids. While price was the driving factor in selecting the winning bid, the company also helped Chicago analyze the bidders’ abilities to close the transaction and carry out development plans.
By tapping into the same practices that private sellers use when they are considering competing bids for properties, local governments like Chicago are getting higher prices and swifter closings on the properties they sell. As more and more city and county officials are challenged to raise money without raising taxes, many will seek out qualified private partners to ensure the best final outcome for taxpayers and for the vitality of the area’s economy.
The author is associate director and vice president for Chicago-based Jones Lang LaSalle.
